Treasury View

In macroeconomics, particularly in the history of economic thought, the Treasury view is the assertion that fiscal policy has no effect on the total amount of economic activity and unemployment, even during times of economic recession. This view was most famously advanced in the 1930s (during the Great Depression) by the staff of the British Chancellor of the Exchequer. The position can be characterized as:

Any increase in government spending necessarily crowds out an equal amount of private spending or investment, and thus has no net impact on economic activity.

In his 1929 budget speech, Winston Churchill explained, "The orthodox Treasury view ... is that when the Government borrow[s] in the money market it becomes a new competitor with industry and engrosses to itself resources which would otherwise have been employed by private enterprise, and in the process raises the rent of money to all who have need of it."

Keynesian economists reject this view, and often use the term "Treasury view" when criticizing this and related arguments. The term is sometimes conflated with the related position that fiscal stimulus has negligible impact on economic activity, a view that is not incompatible with mainstream macroeconomic theory.

In the late 1920s and early 1930s, during the height of the Great Depression, many economists (most prominently John Maynard Keynes) tried to persuade governments that increased government spending would mitigate the situation and reduce unemployment. In the United Kingdom, the staff of the Chancellor of the Exchequer, notably Ralph George Hawtrey and Frederick Leith-Ross, argued against increased spending by putting forward the "Treasury view". Simply put the Treasury view was the view that fiscal policy could only move resources from one use to another, and would not affect the total flow of economic activity. Therefore, neither government spending nor tax cuts could boost employment and economic activity. This view can historically be traced back to various statements of Say's law.

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